CPA UCC3-2 - UCC 3 COMMERCIAL PAPER I. GENERAL COMMENTS 1....

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UCC 3 COMMERCIAL PAPER I. GENERAL COMMENTS 1. The purpose behind UCC 3 is to enable paper substitutes for money to change hands (be “negotiated”) as easily as money. 2. Enables a “remote taker” of an instrument to ascertain their potential rights on the instrument by looking at its face. 3. You need to answer four basic questions: a) Is the PAPER in negotiable form ? b) Does the person wanting to negotiate (transfer) the instrument qualify as a holder ? c) Do they qualify as a holder in due course ? d) What defenses are available to defeat payment? II. TYPES OF PAPER Although there are many types of negotiable instruments/paper (i.e., bills of lading, warehouse receipts, accounts receivable, etc.), only FOUR types are covered by UCC 3 and can result in HDC status. A. DEBT INSTRUMENTS 1. (PROMISSORY) NOTE: A promise to pay a debt by the maker to the payee . 2. CERTIFICATE OF DEPOSIT: a special type of note in which a financial institution is the maker/debtor . - Only have two parties, the payee and the maker . B. NON-DEBT INSTRUMENTS 3. DRAFT: one person (the drawer) orders another (drawee) to pay a 3rd person (payee) a sum of money. 4. CHECK: a draft drawn on a bank (i.e., a bank is the drawee) and payable when drawn. - These instruments have three parties: the payee , the drawer (person who issues the instrument), and the drawee , (the person from whom the money is “drawn”, i.e., the person who is supposed to make payment). III. NEGOTIABILITY
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In order for an instrument to qualify as negotiable, EIGHT elements must be present on the FACE of the document. Anything appearing on the reverse (i.e., as an endorsement) has NO effect on the negotiability of the instrument. The eight elements necessary for negotiability are: 1. The instrument must be IN WRITING, 2. it must be SIGNED by the maker if a debt instrument and by the drawer if a non-debt instrument. 3. it must contain an UNCONDITIONAL . .. a) there is a condition if the instrument is subject to the terms of another agreement. NOTE: a mere reference to a separate document OR a notation that a debt instrument is secured by collateral do NOT impose conditions. 4.
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CPA UCC3-2 - UCC 3 COMMERCIAL PAPER I. GENERAL COMMENTS 1....

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